A sharp decline in the stock market is usually considered to be an opportunity to pick up future winners. But not every dip is like March 2020 where the bounce back is immediate, said Zerodha Co-founder and Chief Executive Nithin Kamath on Thursday.
As stocks are facing their worst month since the outbreak of the pandemic, the Zerodha CEO has shared a Twitter thread related to queries about exiting fixed deposits (FDs), debt funds and buying the dip.
“A lot of messages asking me if one should exit FDs, Debt funds and buy the dip," Kamath tweeted, adding, “This is what I am saying: Not every dip is like March 2020 where the bounce back is immediate."
He added, “This time around, if things get worse, it may take a long time to recover. Nobody knows."
In another tweet, the Zerodha Co-founder said, “If stocks are down 30-40%+, it could be that something has fundamentally changed, even if there is no news about it out there. Markets are super-efficient in the world we live in today, if something seems too good to be true, it usually is."
The idea behind buy a stock
When investing, he said, the idea is to buy a stock that is strong and not which is weak. “Assume there are two stocks, A and B both at ₹100. Say A drops to ₹50 and B remains at ₹100, the odds of B going up is much higher. Sounds counterintuitive, but that is how markets work," Kamath said.
“We sell winners and average down on losers—this is called disposition bias. This strategy can go horribly wrong. Ask the lakhs of investors who kept buying Yes Bank on its way down from ₹400 to ₹10 by exiting all their profitable investments," he further wrote on the microblogging site.
Kamath added, “While the stories of people creating wealth with concentrated bets in one or two stocks sound nice, the odds of that happening is one in a million."
He also said that the best way to invest for the long run is to diversify broadly and have enough cash equivalents for emergencies.
Sensex sinks 581 points as hawkish Fed roils global markets
Meanwhile, equity benchmark Sensex tumbled 581 points today, in tandem with a global selloff after the US Federal Reserve signalled policy tightening from March.
A depreciating rupee and persistent foreign fund outflows further weighed on sentiment, traders said.
The 30-share BSE index ended 581.21 points or 1.00% lower at 57,276.94. Similarly, the broader NSE Nifty plunged 167.80 points or 0.97% to 17,110.15.
HCL Tech was the top loser in the Sensex pack, skidding 4.17%, followed by Tech Mahindra, Dr Reddy’s, Wipro, TCS, Titan and Infosys.
On the other hand, Axis Bank, SBI, Maruti, Kotak Bank, Sun Pharma and IndusInd Bank were among the gainers, climbing as much as 2.81%.
The Federal Reserve left policy rates unchanged on Wednesday, but chairman Jerome Powell said the US central bank is likely to raise interest rates in March and end its massive bond buying program to combat surging inflation.
Investors fear foreign capital outflows from emerging markets like India after rate hikes in Amer.
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Should you exit FDs, debt funds and buy the dip? Zerodha's Nithin Kamath answers - Mint
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